Being in business often means you need an office. Office furniture, being necessary for the business, is treated as a business expense. This expense is deductible on your tax return. However, you must know how this expense is deducted and what classifies as a business expense in regards to your office furniture.

Rules

You must deduct only the amount you spend on furniture used as part of your business. Office furniture would be any furniture including chairs, desks, office printers and related electronics, shelving and picture frames which are used strictly in your office. The office furniture must be necessary for the operation of your business.

Benefit

The benefit of deducting office furniture is that you receive a tax deduction which increases your net income after taxes. It also simultaneously lowers the amount of tax you pay in the year you take the deduction. You could add this savings to your retirement account, like an IRA. Doing so will add to the benefit of the original deduction by continuing to defer tax on the money you deposit into your retirement account, since many retirement accounts allow pretax or tax deductible contributions.

A300 mobile placeholder

Warning

Do not deduct furniture which is unnecessary for your business or which is, in actuality, a personal expense. Personal office furniture expenses are not deductible. When you attempt to deduct these non-deductible expenses, you risk an IRS audit. The IRS will disallow your personal deductions resulting in an underpayment of the tax you owe. You'll have to pay interest on this underpaid amount, along with a penalty. You also cannot deduct more than $5,000 of office furniture if you are just starting your business and the cost would be considered a capitalization cost.

Process

The deduction would be either depreciated over many years or you may take a section 179 deduction to deduct all or a portion of your furniture in the year you purchase it. Use IRS form 4562 to record the deduction amount, and attach this to your 1040 tax return. Do not simply record this deduction under schedule C for profit and loss in your business. Depreciation of your office furniture is done using the MACRS Depreciation model outlined in IRS publication 946.

References

Photo Credits

Dynamic Graphics Group/Dynamic Graphics Group/Getty Images

About the Author

I am a Registered Financial Consultant with 6 years experience in the financial services industry. I am trained in the financial planning process, with an emphasis in life insurance and annuity contracts. I have written for Demand Studios since 2009.